I'll just come out and say it: I did not make smart financial decisions when I was 20 years old. The things I wanted were ill-considered and the things I bought were absurd.
But as time passed, I did eventually learn to look after my money. Household budgeting -- one of the most basic principles of money management -- turned out to be so helpful that I wished I'd figured out sooner how easy it was.
Here are a couple of the world's simplest ways to get a handle on your everyday spending, in case you or someone you know -- perhaps a new graduate? -- could use some help with this fundamental money skill.
Sort Your Spending
Studies have shown that the average American adult has three or four credit accounts open at any given time. If that sounds like you, there's a way you can sort out your monthly spending that might also help you get a little extra value out of all those credit cards.
It's simple: Just designate a single card for each type of purchase that you want to work into the budget. One for groceries, one for gas, one for utilities and other monthly bills, one for dining, entertainment and so on. At the end of each month, all the budget recon you need is laid out on the itemized statement for each card.
A bonus advantage to this is that credit card reward programs tend to favor certain categories of purchase over others. Target your spending categories to the right rewards cards and you can give your budget a boost from the cash back and other points that you rack up each month.
Leave a Paper Trail
This one requires a little more organization on your part, but exercising your organizational skills is a good idea anyway. Besides, learning how to keep certain parts of your life organized can give you the feeling that you finally know what you're doing, which is one of those perks of adulthood that nobody really tells you about.
Despite the bit of extra attention required, this method isn't rocket science either. Just remember to get a receipt whenever you make a purchase. Sort these purchases into categories and stick them all in a safe place when you get home and take a calculator to the totals at month's end.
Keeping a paper trail can be advantageous because it doesn't require that you change your spending patterns at the point of sale, and it comes with the additional benefit of being able to look over itemized grocery or dining receipts if you want to view some deep data on your raw spending totals.
Taking it to the Next Level
Try either method for a few months and you should have a pretty good idea of what it's been costing you to live your life. With that information in hand, there are a few different ways you can move forward:
- Subtract your monthly spending from your net income to find your discretionary baseline.
- Determine the savings amount that your budget allows and sock it away in your savings account on payday (preferably through an automated transfer).
- Set budgetary targets to reroute some of your spending into a travel fund or an account for another saving goal.
- Use the same methods to explore sub-categories of spending or analyze incidental spending for discrepancies.
Household budgeting may not be the sexiest thing about adult life, but it's one of the secrets that can help make day-to-day living easier to manage. It may result in a few unexpected discoveries -- how much you actually spend at Starbucks in a month may terrify you, for example -- but don't take it too hard. It's OK to forgive yourself for things you did before you knew better.
I hope it is, anyway. The way I lived at 20 would haunt me forever otherwise.
The original article can be found at MoneyBlueBook.com:
Ready for financial adulthood? Learn this skill now